Does it feel as if the things that have traditionally defined the middle class – home ownership in a community with good public schools, the promise of financial security – are no longer within your reach? If so, you’re not alone.

“Real estate values have skyrocketed at the same time that we’ve been trying to secure careers and raise a family,” says Amy Bebergal, the mother of a 3-year-old boy. “We struggle to pay rent, are not able to save, and it doesn’t look like we will be homeowners for a very long time to come.”

If you’re already a homeowner, do you feel insecure about what you’ve got? Karen Daniels, a mother of two daughters, ages 2 and 5, has a good job and she and her husband own their apartment, but she still can’t relax. “My husband’s salary just covers our major expenses: mortgage, utilities, phone and insurance. Without my salary we wouldn’t be able to eat, send our daughters to preschool, or save any money,” Daniels says. “I really don’t know how my parents did it.”

It’s not Daniels’ imagination. In a single generation, the financial landscape has changed dramatically for the worse for American families, according to Amelia Warren Tyagi, a business consultant, and her mom, Elizabeth Warren, a bankruptcy expert and professor at Harvard Law School who was a principal investigator on 2001’s The Consumer Bankruptcy Project, the largest study ever on families that have failed financially. Together, the two women are co-authors of the groundbreaking book, The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke.

Thirty years ago, a middle-class family could expect to buy a home and educate their children on one income, Tyagi and Warren note. Today, an average family requires two incomes to meet those needs, and even then it’s a stretch for many. To compound the problem, today’s families live with more risk – of job loss, of loss of benefits – and less economic security for their efforts.

Basic Costs

“The biggest surprise from our research for The Two-Income Trap was that the single best predictor for bankruptcy is having a child,” says Tyagi, “By the end of this decade, if things continue to go the way they’re going, one in seven families with children will have gone bankrupt.”

This year, about 2 million people will end up in bankruptcy and more children will live through their parents’ bankruptcy than their parents’ divorce. If you’re like many people, when you hear the word “bankruptcy” you immediately think “credit-card debt” and “irresponsible consumerism.” But the truth is, they’re not the main cause. A February 2005 report out of Harvard University Medical School shows that half of all U.S. bankruptcies are caused by medical bills, with only 1 percent the result of credit-card debt.

“When we first found out that having a child was a predictor of bankruptcy, we thought this would be a story of over-consumption,” says Tyagi. “But it’s just not the case. In fact, the American family is spending its money pretty sensibly.”

Married couples with children are more than twice as likely to file for bankruptcy than childless couples, according to Warren and Tyagi. “But there’s not much evidence that real spending on leisure items is increasing by any significant amount,” Tyagi says. “Today’s families spend more on cable TV service and DVDs, but that’s more than outweighed by what we don’t spend on tobacco, for example.”

Instead, the co-authors paint a picture of ordinary, responsible people caught by rising fixed costs – costs of goods and services associated with belonging to the middle class.

“Families are spending more on the basics, not the silly stuff,” says Tyagi. “This is a story of housing, health insurance, college tuition, preschool and a second car.”Today’s parents are spending more money on:

• Housing – As confidence in public schools has declined, the pressure to own a home in a safe neighborhood with good schools has resulted in a real-estate bidding war, Warren and Tyagi note.

• Health insurance and health care – Premiums for families have gone up 59 percent in four years, compared to a 12.3 percent wage growth rate, according to a September 2004 CNN report.

• Education – Together, preschool and college – both now considered essential for access to the middle class – account for approximately one-third of a child’s education, and both must be funded by families. Tuitions just keep going up, outpacing inflation.

• Transportation – And what about that second car? Well, that’s so mom can get to work.

Two-Income Trap

Once upon a time, moms went to work to help their families get ahead. Today, with fixed costs so high, an average family’s second income – typically mom’s income – is essential to meeting its basic expenses, according to Tyagi and Warren. The authors show that, at the turn of the millennium, the average U.S. family had less money left after paying fixed costs than the average family did 30 years ago – despite the second income. Send one parent home and the family faces a close-to-impossible equation, since the average two-income family spends 75 percent of their earnings on basic expenses.

“Even if a family eliminates childcare and the second car – costs associated with a second job – there’s only so much downshifting they can do,” says Tyagi. “Just how far are families supposed to go? For the average family, cutting one income means letting go of health insurance, not extravagant extras.” It often means, Warren and Tyagi point out, letting go of any hope of being part of the middle class. This is the two-income, “can’t-afford-to-work-can’t-afford-to quit” trap.

More Risk

Being dependent on two incomes also exposes families to more risk, doubling the chances of missed work due to illness or layoff.

“Having two jobs essentially doubles your risk for job loss,” Tyagi explains. “Losing one job is not necessarily a disaster if you’re living on one income and the other is ‘gravy.’ But if you need both incomes to make your basic expenses, then the doubled risk of job loss is double the risk of major financial setback.”

“If one of us lost our job, we’d be in real trouble,” says Daniels. “We have enough savings to hold on for a couple of months but after that, it’s the necessities that go.”

With so little discretionary income available, many families turn to credit to stay afloat when faced with disaster, Tyagi says. When the good times don’t return fast enough, that credit debt can sink a family. And that – not too many pairs of pricey sneakers – is what ultimately leads to bankruptcy court.

There are three factors that account for 90 percent of all bankruptcies, Tyagi says, “job loss, illness and divorce.”

Playing by the Rules

In the end, the high rates of bankruptcy tell a story of a generation of American families who thought they were playing by the rules, but rather than getting ahead, lost ground, according to Tyagi.

“We want a safe community, a good education for our kids, a chance for them to get a good job when they grow up – the same things our parents wanted for us,” says Tyagi. “It’s just gotten a lot harder to get there.”